All states and two of the three internal territories have their own parliaments and administer themselves; all remaining territories are administered by the federal government, but with Norfolk Island having some degree of self-government.

From 1926 to 1931, the Northern Territory was divided into Central Australia and North Australia, with the border at the 20th parallel of latitude. Both territories were reincorporated as the Northern Territory at the end of this period.

The states originated as separate British colonies prior to Federation (in 1901). The colony of New South Wales was founded in 1788 and originally comprised much of the Australian mainland, as well as Lord Howe Island, New Zealand, Norfolk Island, and Van Diemen's Land, in addition to the area currently referred to as the state of New South Wales. During the 19th century, large areas were successively separated to form the colonies of Tasmania (established as a separate colony named Van Diemen's Land in 1825), South Australia (1836), New Zealand (1840),[3] Victoria (1851) and Queensland (1859). The Swan River Colony (present-day city of Perth) was established in Western Australia in 1829. On Federation, the six colonies of New South Wales, Victoria, Queensland, South Australia, Western Australia, and Tasmania became original states of the new Commonwealth of Australia.

Most of the territories are directly administered by the Commonwealth Government, while three (the Northern Territory, the Australian Capital Territory and Norfolk Island) have some degree of self-government. In the self-governing territories, the Australian Parliament retains the full power to legislate, and can override laws made by the territorial institutions, which it has done on rare occasions. For the purposes of Australian (and joint Australia-New Zealand) intergovernmental bodies, the Northern Territory and the Australian Capital Territory are treated as states.

Furthermore, the distribution of powers between the Commonwealth and the territories is different from that between the Commonwealth and the states. In the Northern Territory, the Commonwealth retains the power to directly administer uranium mining and Aboriginal landsTemplate:Spaced ndashpowers which it does not possess with respect to the states.

Each state has a Governor, appointed by the Queen, which by convention she does on the advice of the state Premier. The Administrators of the Northern Territory and Norfolk Island are, by contrast, appointed by the Governor-General. The Australian Capital Territory has neither a Governor nor an Administrator, but the Governor-General exercises some powers that in other jurisdictions are exercised by the Governor of a state or Administrator of a territory, such as the power to dissolve the Legislative Assembly.

Jervis Bay Territory is unique in being the only non-self-governing internal territory. Until 1989, it was administered as if it were a part of the ACT, although it has always been a separate territory. Under the terms of the Jervis Bay Territory Acceptance Act, the laws of the ACT apply to the Jervis Bay Territory insofar as they are applicable and providing they are not inconsistent with an Ordinance.[4] Although residents of the Jervis Bay Territory are generally subject to laws made by the ACT Legislative Assembly, they are not represented in the Assembly. They are represented in the Parliament of Australia as part of the Electoral Division of Fraser in the ACT and by the ACT's two Senators. In other respects, the territory is administered directly by the Federal Government through the Territories portfolio.

Each state has a bicameral parliament except Queensland, which abolished its upper house in 1922. The lower house is called the Legislative Assembly, except in South Australia and Tasmania, where it is called the House of Assembly. Tasmania is the only state to use proportional representation for elections to its lower house; all others elect members from single member constituencies, using preferential voting. The upper house is called the Legislative Council and is generally elected from multi-member constituencies using proportional representation. The three self-governing territories, the ACT, the Northern Territory, and Norfolk Island, have unicameral Legislative Assemblies.

The head of government of each state is called the Premier, appointed by the state's Governor. In normal circumstances, the Governor will appoint as Premier whoever leads the party or coalition which exercises control of the lower house (in the case of Queensland, the only house) of the state Parliament. However, in times of constitutional crisis, the Governor can appoint someone else as Premier. The head of government of the self-governing internal territories is called the Chief Minister. The Northern Territory's Chief Minister, in normal circumstances whoever controls the Legislative Assembly, is appointed by the Administrator.

^"Jervis Bay Territory Governance and Administration". Although the Jervis Bay Territory is not part of the Australian Capital Territory, the laws of the ACT apply, insofar as they are applicable and, providing they are not inconsistent with an Ordinance, in the Territory by virtue of the "Jervis Bay Acceptance Act 1915". The Department of Regional Australia, Local Government, Arts and Sport. Retrieved 17 January 2013.